Wall Street isn't showing much love for U.S. telecom giant Verizon Communications (VZ 0.65%). The stock has been trading near its lowest price in five years since the company's Q2 earnings showed that the company's growth is probably stalling out in 2022.
But everyone's investment goals should cater to their individual situation, and retirees should think twice before disconnecting Verizon from their portfolios. Here's why Verizon should remain an excellent dividend stock for retirees.
Verizon is taking its lumps
Verizon delivered a Q2 report that some might call mediocre. Operating results confirmed some trouble under the hood and subscriber growth fell off the cliff in Verizon's wireless segment. After seeing net additions go from 558,000 in 2021 Q4 to a loss of 36,000 in 2022 Q1, the company squeezed out 12,000 net additions in Q2. Verizon lost 215,000 consumer accounts in the quarter, but 227,000 business additions made up for it.
The wireless network is Verizon's core business, and the weak momentum impacts forward guidance. Management put out full-year 2022 revenue guidance at flat to negative 1%. They cut earnings-per-share (EPS) guidance from $5.40 to $5.55 to $5.10 to $5.25.
Many companies have blamed a softening economy for weak guidance. Verizon did the same in its earnings call but conceded that competition also played a role in its weak subscriber growth. Chief rival AT&T recently announced an impressive 813,000 net additions in Q2, confirming that users seem to be dropping Verizon in favor of AT&T.
Not time to panic
Seeing AT&T eat Verizon's lunch isn't ideal, but it's too soon to panic. The U.S. telecom industry is a small circle, and Verizon, AT&T, and T-Mobile essentially control the entire market.
These three companies are very competitive with each other, but there's little threat from outside competition. It doesn't make sense for new companies to enter the industry because a wireless network costs many billions to build and maintain. This is an expensive gamble with no promise of unseating the existing big three.
Users may jump from one to another -- Verizon's market share has fluctuated between 28% and 35% for the past decade. Its current 31.5% share of the market is right in the middle of that historical range. It's something to keep an eye on, but selling the stock seems like a potential overreaction right now.
The dividend is safe
Besides, the dividend is why most investors own the stock -- especially retirees. From a passive-income standpoint, Verizon is as strong as ever:
Verizon has raised its dividend for 18 consecutive years, a streak that doesn't seem to be in danger. The dividend-payout ratio has declined over the past decade, and the dividend yield, at 5.75%, is the highest it's been in that time.
In other words, the dividend yields more than ever, yet it's more affordable for Verizon. That should be music to the ears of investors looking for passive income.
Verizon's valuation is excellent for retirees
Verizon's struggles have translated to the stock, which sits near its lowest price in roughly five years. The stock's price-to-earnings ratio (P/E) is 8.7, based on the low end of 2022 EPS guidance.
The stock's median P/E over the past decade is 13, so shares are well below their historical norms. Again, a retiree should celebrate lower prices since the dividend is the priority.
A lower valuation means a higher dividend yield, and reinvested dividends buy more shares when the stock price is low. It's a winning situation for retirees.